BAE Systems PLC — Report Publication Announcement 2014

Mar 27, 2014

NOTIFICATION OF BAE SYSTEMS ANNUAL REPORT 2013 AND AGM

This notice advises you that you can read the full BAE Systems Annual Report 2013 and Notice of Annual General Meeting online at: www.baesystems.com/reporting

It also provides a brief overview of our performance in 2013.

For more information on the benefits of e-communications see back page.

Dear Shareholder

I am writing to advise you that the Company's Annual Report for 2013 has been published together with the Notice of Annual General Meeting. These documents are available to be viewed on the Company's Shareholder Reporting website that you can access at: www.baesystems.com/reporting

This year's Annual General Meeting (AGM) is to be held on 7 May 2014 at FIVE (Farnborough International Venue & Events), Farnborough, Hampshire starting at 11.00am. If you are unable to attend the meeting but wish to vote by proxy you can do so via the Shareholder Reporting website. Simply click on the shareholder voting icon and use the numbers on the enclosed instruction card to access the voting system – even if you will be attending the meeting you can still vote by proxy and, if you wish, change your vote during the meeting.

If, ahead of the AGM, you would like to ask a question in relation to the business to be discussed, you can do so online on the Shareholder Reporting website. We will provide written answers dealing with those topics that feature most frequently in your questions. These will be published on the day of the AGM and be available to everyone attending the meeting; they will also be posted on our website.

Overleaf you will see the top-level financial figures in respect of the Company's performance in 2013 and an overview of the different businesses within the BAE Systems Group. This is just a brief summary and is not a substitute for the full Report that can be accessed online.

The Board has recommended a final dividend of 12.1p per share making a total of 20.1p per share for the year, an increase of 3% over 2012. Subject to shareholder approval at the 2014 AGM, the 2013 final dividend will be paid on 2 June 2014 to shareholders registered on 22 April 2014.

Yours sincerely

Sir Roger Carr, Chairman
27 March 2014

Important information

It is recommended that you read the full Notice of Annual General Meeting before taking a decision on how to vote at the Annual General Meeting. It is also recommended that you read the full BAE Systems Annual Report 2013. This notice does not set out the matters on which shareholders are being asked to vote at the Annual General Meeting and is not a substitute for such documents. If you have sold or otherwise transferred all your shares in BAE Systems plc, please forward this document at once to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. If you have sold or otherwise transferred only part of your holding of shares, you should retain this document.

BAE SYSTEMS
INSPIRED WORK

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RESULTS IN BRIEF

| Sales^{3}
£18,180M 2013
£17,905M^{1} 2012 | Underlying EBITA^{4}
£1,925M 2013
£1,862M^{1,2} 2012 |
| --- | --- |
| Underlying earnings^{5} per share
42.0P 2013
38.7P^{1,2} 2012 | Operating profit
£806M 2013
£1,605M^{1,2} 2012 |
| Basic earnings per share^{6}
5.2P 2013
29.3P^{1,2} 2012 | Order backlog^{2,7}
£42.7BN 2013
£42.5BN^{1} 2012 |
| Operating business cash flow^{8}
£147M 2013
£2,692M 2012 | Net (debt)/cash (as defined by the Group)
£(699)M 2013
£387M 2012 |
| Dividend per share
20.1P 2013
19.5P 2012 | |

• Sales³ increased by 2% to £18.2bn
• Underlying EBITA⁴ increased by 3% to £1.9bn and underlying earnings⁵ per share increased by 9% to 42.0p
• Equitable conclusion reached on price escalation negotiations with the Kingdom of Saudi Arabia
• Order backlog³,⁷ of £42.7bn maintained at 2012 levels with non-UK/US order intake³ of £9.3bn

• Robust, investment grade balance sheet, with net debt of £699m at year end

• Non-cash goodwill impairment of £865m in US businesses, due to increased weighted average cost of capital and taking into account lower US defence spending

• Full year dividend increased by 3% to 20.1p per share
• £850m returned to shareholders in 2013, including £212m on the share repurchase programme

ELECTRONIC SYSTEMS

Electronic Systems comprises the US and UK-based electronics activities, including electronic warfare systems and electro-optical sensors, military and commercial digital engine and flight controls, next-generation military communications systems and data links, persistent surveillance capabilities, and hybrid electric drive systems.

Operational key points

• Maintained a leadership position in the electronic warfare market, with strong performance on the Group's components for F-35 Lightning II
• Won a development contract on the US Army's Joint Effects Targeting System programme
• Strengthened position in the Identification Friend or Foe market
• Strengthened position in the high-growth commercial aircraft electronics market
• Not selected on the US Army's next-generation Mid-tier Networking Vehicular Radio programme
• £0.2bn of research and development expenditure⁹ in 2013

| Sales^{3}
£2,466M |
| --- |
| Number of employees^{7}
12,500 |

1 Re-presented on classification of the Regional Aircraft line of business as a continuing operation.
2 Restated on adoption of the revised International Accounting Standard 19, Employee Benefits.
3 Including share of equity accounted investments.
4 Earnings before amortisation and impairment of intangible assets, finance costs and taxation expense (EBITA) excluding non-recurring items.
5 Earnings excluding amortisation and impairment of intangible assets, non-cash finance movements on pensions and financial derivatives, and non-recurring items.
6 Basic earnings per share in accordance with International Accounting Standard 33, Earnings per Share.
7 Order backlog comprises funded and unfunded unexecuted customer orders, and is stated after the elimination of intra-group orders.
8 Net cash inflow from operating activities after capital expenditure (net) and financial investment, dividends from equity accounted investments, and assets contributed to Trust.
9 Includes both Group-funded and customer-funded expenditure.

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CYBER & INTELLIGENCE

PLATFORMS & SERVICES (US)

PLATFORMS & SERVICES (UK)

PLATFORMS & SERVICES (INTERNATIONAL)

Cyber & Intelligence comprises the US-based Intelligence & Security business and UK-headquartered Applied Intelligence (formerly BAE Systems Detica) business, and covers the Group's cyber, secure government, and commercial and financial security activities.

Operational key points

Intelligence & Security

• Awarded a three-year follow-on contract to the Counter-Improvised Explosive Device programme
• Maintained a leadership position in activity-based intelligence
• Continued to invest in differentiating technologies to support a bid pipeline of $2.4bn (£1.4bn) at the end of 2013
• US business significantly impacted by US budget pressures and partial government shutdown

Applied Intelligence

• Named as cyber security partner to Vodafone for provision of secure mobile services
• Achieved launch of new product for detection of sophisticated cyber threats, CyberReveal™, adopted by one major investment bank
• A number of important customer wins for NetReveal® OnDemand services
• Awarded framework contracts for IT services to the Foreign & Commonwealth Office and Network Rail
• Awarded integrated cyber security services contracts to three Middle Eastern countries

Platforms & Services (US) comprises the US-headquartered Land & Armaments business, with operations in the US, UK, Sweden and South Africa, and the US-based services and sustainment activities, including ship repair and munitions services.

Operational key points

Land & Armaments

• Strong operational performance
• Continued focus on cost reduction actions
• Contract for Low-Rate Initial Production received on the Paladin Integrated Management programme
• Integration work ceased on Caiman Multi-Terrain Vehicles and Sealy, Texas, facility to close in 2014

Support Solutions

• Performance impacted by charges taken on the Radford Army Ammunition Plant contract, commercial shipbuilding activity and not being awarded follow-on options on the US Navy aircraft maintenance contract
• Follow-on awards on US munitions facilities management contracts
• Significant multi-year contracts to support ballistic missiles in the US
• Letter of Agreement finalised for upgrades and systems integration for South Korean F-16 aircraft

Platforms & Services (UK) comprises the Group's UK-based air, maritime, combat vehicle, munitions and certain shared services activities.

Operational key points

• 34 Typhoon Tranche 2 and the first Tranche 3 aircraft delivered to the European partner nations
• First Hawk jets delivered to the Indian Navy
• Naval sector restructuring agreement reached with the UK Ministry of Defence
• Two Khareef Class corvettes for the Royal Navy of Oman achieved interim acceptance
• Sixth and final Type 45 destroyer accepted off-contract
• Third and final Offshore Patrol Vessel delivered to the Brazilian Navy
• £0.1bn of funding for ongoing design and development of the Royal Navy's Successor submarine
• Increased funding for the fifth, sixth and seventh Astute Class submarines

Platforms & Services (International) comprises the Group's businesses in Saudi Arabia, Australia, India and Oman, together with its 37.5% interest in the pan-European MBDA joint venture.

Operational key points

• Salam Typhoon price escalation negotiations concluded
• Resumption of Typhoon aircraft deliveries to Saudi Arabia under the Salam programme
• Five-year, £1.8bn output-based Salam Typhoon support contract received
• £1.5bn of orders received for Tornado aircraft upgrades and weapons procurement under the Saudi British Defence Co-operation Programme
• Integration and trials of the first Landing Helicopter Dock (LHD) in Australia ongoing
• Second LHD hull arrived in Australia for consolidation to commence in the first quarter of 2014
• Five-year, A$342m (£185m) support contract for Royal Australian Air Force Hawk training aircraft received
• MBDA secured significant contracts with its UK and French government customers

Sales²
£1,243M

Sales²
£4,196M

Sales²
£6,890M

Number of employees²
19,200

Number of employees²
28,300

Number of employees²
14,600

Number of employees²
7,700

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MULTIPLE MARKETS

BAE Systems is a global business with positions across four principal markets and a track record of success in international markets.

BAE Systems has a broad geographic base with business operations in four principal markets around the world, in the US, the UK, the Kingdom of Saudi Arabia and Australia. These markets are identified as having a significant and sustained commitment to defence and security. They are countries that welcome foreign investment to develop and sustain a domestic defence industrial capability, building long-term and trusted customer relationships.

BAE Systems has a strong international market presence with well-established relationships across the globe, supported by regional sales offices.

The Group's strategy continues to focus on the importance of winning international business, where growth markets remain. Success in these international defence, aerospace and security markets is evident in the significant order intake in markets outside the US and UK.

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BAE Systems plc
6 Carlton Gardens
London SW1Y 5AD
United Kingdom
www.baesystems.com
Registered in England and Wales No. 1470151
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Cautionary statement: All statements other than statements of historical fact included in this document, including, without limitation, those regarding the financial condition, results, operations and businesses of BAE Systems and its strategy, plans and objectives and the markets and economies in which it operates, are forward-looking statements. Such forward-looking statements which reflect management's assumptions made on the basis of information available to it at this time, involve known and unknown risks, uncertainties and other important factors which could cause the actual results, performance or achievements of BAE Systems or the markets and economies in which BAE Systems operates to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. BAE Systems plc and its directors accept no liability to third parties in respect of this report save as would arise under English law.